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Pizza war causes prices to fall like Domino's

Tom Cowie

The mozzarella is beginning to melt in a simmering pizza price war, as the big chains fight for a bigger slice of Australia's $3.5 billion pizza industry.

Leading player Domino's Pizza fired the first shot last month, cutting the price of its value range pizzas to $4.95, a move it describes as "never before seen on the pizza landscape".

Days later, Pizza Hut returned serve, not only matching its rival's $4.95 price tag but also capping the cost of their most expensive pizza at $8.50.

Domino's chief executive Don Meij, a former pizza delivery driver, says the move to cheaper pizzas is a response to customers asking them to extend their promotional prices across the week.

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The Brisbane-based company is Australia's largest pizza chain with network sales of $467 million in revenue and 13.4 per cent market share.

It has embarked on an aggressive growth strategy, expanding to more than 500 stores in Australia, and has excelled on the ASX, up about 28 per cent in six months.

"We thought: 'We can afford to do this, it's profitable to do this, so why don’t we do it everyday?' And as you can see it's been copied by our friends," he says.

Pizza Hut general manager Graeme Houston denies the company is blindly following the lead of Domino's. The new strategy has been in testing for months, he says, with excellent results.

With a 5.8 per cent market share, the company is seeking to win back the dominant position it held in the 1990s before customers started shying away from dine-in restaurants in favour of takeaway.

"This is not a copycat strategy at all. The notion that somehow this was just a reaction to Domino's is nonsense," he says.

The prospect of cheaper pizzas isn't to everyone's taste. A group of 80 Pizza Hut franchisees recently failed to get an injunction against head company Yum! to stop the new pricing model.

Mr Houston says the court case was "not ideal" but adds that Pizza Hut is rebuilding its relationship with its franchisees and hopes a boost in sales from the new strategy will help.

"Results will always be the ultimate scorecard," he says

Health experts are also concerned about the idea of fast food getting cheaper. Nutritionist Dr Rosemary Stanton says pizzas are high in fat, high in salt and low in fibre.

The population is getting fatter, she says, and doesn't need the option of a $4.95 pizza packing 5000 kilojoules.

"That's the problem, the cheap price encourages over-consumption. It will be eaten instead of a meal that contains vegetables," she says.

Australia's third big pizza chain, Eagle Boys, is closely watching its competitors. Eagle Boys general manager of retail Nick Vincent says the company won't be matching the price at this stage, calling it "unsustainable".

"There's no doubt it's a competitive market, which is why we're seeing this war," he says

Both Domino's and Pizza Hut are playing down the idea they are engaging in a war on prices. They say the strategy is about growing pizza's market share against other takeaway options.

Pizza ranks third on the list of Australia's favourite fast food, behind burgers and chicken. The industry drags in $3.5 billion in revenue and employs nearly 15,000 people.

On whether the discounting will lead to a drop in standards, Mr Meij from Domino's says quality won't be compromised.

He throws in a jab at his competitors: "When you put lunch meat on a pizza, you can give it away," he says.

Pizza Hut's Mr Houston fobs off the suggestions of lower quality, saying his menu has been rationalised to preserve flavour.

"We've invested in those pizzas to make sure they're as good as they possibly can be," he says.